Can You Buy a House With a 5% Deposit in Australia?
Can You Buy a House With a 5% Deposit?
Yes — eligible buyers can purchase a home with a deposit of as little as 5% under the Australian Government 5% Deposit Scheme.
The scheme was previously known as the Home Guarantee Scheme and was significantly expanded from 1 October 2025.
For eligible first home buyers, the scheme can allow you to purchase a home with a minimum 5% deposit without paying Lenders Mortgage Insurance (LMI).
This can make a significant difference for buyers who have a strong income and the ability to afford a mortgage but haven't yet been able to save a traditional 20% deposit.
However, having a 5% deposit doesn't automatically mean you'll be approved for a home loan.
You still need to meet the relevant eligibility requirements and the participating lender's normal lending and servicing criteria.
How Does the 5% Deposit Scheme Work?
The Australian Government 5% Deposit Scheme works by providing a guarantee to participating lenders.
Normally, a buyer borrowing more than 80% of a property's value may need to pay Lenders Mortgage Insurance.
Under the scheme, the government guarantee supports the lender, allowing eligible buyers to borrow up to 95% of the property's value without LMI.
This means an eligible first home buyer may only need to contribute a minimum 5% deposit.
For example:
Property purchase price: $700,0005% deposit: $35,000Home loan: Approximately $665,000
This is a simplified example and doesn't include other purchasing costs such as conveyancing, inspections, stamp duty or other applicable fees.
The important point is that 5% of the purchase price isn't necessarily the only money you'll need to have available.
What Is the Australian Government 5% Deposit Scheme?
The Australian Government 5% Deposit Scheme is designed to help eligible Australians purchase a home sooner with a smaller deposit.
From 1 October 2025, the scheme was expanded to:
Remove income caps
Remove the previous limit on the number of places
Increase property price caps
Allow all eligible first home buyers to access the 5% deposit option
Continue to provide the benefit of no LMI for eligible purchases
The scheme is administered by Housing Australia and is accessed through participating lenders.
You don't apply directly to Housing Australia for your home loan.
Instead, you apply through a participating lender as part of your normal home loan application.
Who Can Buy a Home With a 5% Deposit?
The general 5% Deposit Scheme is available to eligible first home buyers and certain buyers who have not owned property in Australia within the previous 10 years.
Generally, you must:
Be at least 18 years old
Be an Australian citizen or permanent resident
Have saved a minimum 5% deposit
Be a first home buyer, or not have owned a property or land in Australia within the previous 10 years
Purchase a property within the applicable location price cap
Live in the property as an owner-occupier
Take out an eligible owner-occupier home loan with a participating lender
Meet the lender's normal lending criteria
The scheme can be used for various property types, including existing homes, new homes, townhouses, apartments and certain house-and-land or construction arrangements, provided the property meets the scheme requirements.
What If You've Owned a Property Before?
This is an important change to understand.
Being a first home buyer isn't necessarily the only way you can qualify.
Under the current scheme, you may also be eligible if you have not owned a property or land in Australia within the previous 10 years.
This means some people who previously owned property may still be able to access the scheme, depending on their circumstances.
Eligibility should always be checked before assuming you qualify.
Do You Need to Pay Lenders Mortgage Insurance With a 5% Deposit?
One of the biggest benefits of the Australian Government 5% Deposit Scheme is that eligible buyers can avoid Lenders Mortgage Insurance.
Normally, if you borrow more than 80% of a property's value, LMI may apply.
For example, if you have a 5% deposit and borrow 95% of the property's value, you would traditionally be considered a high-LVR borrower.
The government guarantee can help eligible buyers avoid that additional LMI cost.
This can potentially save thousands of dollars in upfront costs.
However, you still need to pay your other property purchase costs.
The scheme doesn't mean you can buy a home with absolutely no upfront costs.
What Other Costs Do You Need to Budget For?
One of the biggest mistakes first home buyers make is assuming:
"If I have 5% saved, I have enough money to buy a house."
Not necessarily.
You'll also need to consider costs such as:
Conveyancing or legal fees
You'll generally need a solicitor or conveyancer to assist with the purchase.
Building and pest inspection
If you're buying an established property, a building and pest inspection can help identify potential issues before you commit to the purchase.
Stamp duty
Stamp duty rules and concessions vary depending on your state or territory and your individual circumstances.
Some first home buyers may qualify for concessions or exemptions.
Registration and government fees
There may be additional government and registration costs associated with the purchase and mortgage.
Moving costs
Don't forget the practical costs of actually moving into your new home.
Emergency savings
Ideally, you don't want to use every dollar you have to get the keys.
Keeping some money aside for unexpected expenses can provide a valuable buffer once you become a homeowner.
Can You Use a Gifted Deposit?
Potentially, yes.
Some first home buyers receive financial assistance from their parents or other family members to help with their deposit.
Whether a gifted deposit can be used will depend on the lender's policy and the circumstances surrounding the funds.
The lender may require evidence confirming that the money is a genuine gift and is not required to be repaid.
If you're receiving help from family, it's worth discussing this with your mortgage broker early rather than transferring a large amount of money without understanding what documentation may be required.
For more information, see our guide:
Can You Use a Gifted Deposit to Buy a House in Australia?
Can You Use the 5% Deposit Scheme to Build a Home?
Yes, the scheme can potentially be used for certain construction arrangements.
The Australian Government's 5% Deposit Scheme can support eligible buyers purchasing or building a home, subject to the scheme's requirements and the participating lender's lending criteria.
This can be particularly relevant for first home buyers purchasing:
A house-and-land package
Vacant land with an eligible construction arrangement
A new-build property
A property being built under a construction contract
Construction loans work differently from a standard purchase loan because funds are generally released progressively as construction reaches different stages.
If you're considering building, it's important to understand both the scheme requirements and the lender's construction lending policy before signing contracts.
Can You Use the 5% Deposit Scheme for an Investment Property?
No.
The general 5% Deposit Scheme is designed for owner-occupied homes.
You need to intend to live in the property rather than purchasing it as an investment.
The scheme also comes with ongoing obligations, including continuing to meet the relevant owner-occupier requirements.
If you're looking to purchase an investment property, there are other low-deposit lending options that may be available, but these are separate from the government scheme.
Is There an Income Limit for the 5% Deposit Scheme?
One of the major changes introduced from 1 October 2025 was the removal of the previous income caps.
This means eligible first home buyers are no longer restricted by the former income limits when accessing the general 5% Deposit Scheme.
However, no income cap doesn't mean there is no borrowing capacity requirement.
You still need to demonstrate that you can afford the loan.
A lender will assess your income, expenses, existing debts and other financial commitments before deciding how much you can borrow.
In other words:
Being eligible for the scheme doesn't guarantee loan approval.
What About Property Price Caps?
The 5% Deposit Scheme does have property price caps.
The maximum purchase price depends on the location of the property.
This is important because being eligible for the scheme doesn't mean you can purchase any property at any price with a 5% deposit.
For example, a property may be outside the applicable price cap for its location and therefore not qualify for the scheme.
The government provides a price cap lookup tool, but it's important to confirm the applicable cap with your participating lender before signing a contract.
What If I Don't Qualify for the 5% Deposit Scheme?
Don't automatically assume that your home ownership plans are over.
There are other potential low-deposit options outside the government scheme.
Depending on your circumstances, you may be able to consider:
A standard home loan with LMI
A family guarantee
A gifted deposit
Other lender-specific low-deposit options
First home buyer concessions
Saving for a larger deposit
The right option will depend on your income, deposit, property type, location and overall financial position.
This is where comparing different lending options can be useful.
Is It Better to Wait Until You Have a 20% Deposit?
Not necessarily.
A 20% deposit can be beneficial because it generally means you can avoid LMI outside government schemes and have a lower loan-to-value ratio.
But waiting until you've saved 20% can also take several years.
During that time:
Property prices may change
Your rent may continue to increase
Your income may change
Your personal circumstances may change
Your borrowing capacity may change
There isn't one deposit percentage that is automatically right for everyone.
The important question is whether buying now with a smaller deposit is financially sustainable for you.
Example: 5% Deposit vs 20% Deposit
Let's say you're purchasing a $700,000 home.
With a 5% deposit:
Deposit: $35,000Approximate loan: $665,000
With a 20% deposit:
Deposit: $140,000Approximate loan: $560,000
That's a difference of $105,000 in upfront savings.
For many buyers, saving an additional $105,000 could take years.
The trade-off is that the buyer with the smaller deposit will have a larger mortgage and therefore higher repayments.
This is why the question shouldn't simply be:
"Can I buy with 5%?"
It should be:
"Can I comfortably afford the mortgage if I buy with 5%?"
Common Questions About 5% Deposit Home Loans
Can I buy a house with a 5% deposit?
Yes. Eligible first home buyers can potentially purchase a home with a minimum 5% deposit under the Australian Government 5% Deposit Scheme.
Can I buy a $700,000 house with a 5% deposit?
If the property is eligible and you meet the scheme requirements, a 5% deposit on a $700,000 property would be $35,000.
You would also need to budget for other purchasing costs.
Do I have to pay LMI with a 5% deposit?
Eligible buyers using the Australian Government 5% Deposit Scheme can avoid LMI because the government provides a guarantee to the participating lender.
If you're using a different low-deposit loan outside the scheme, LMI may apply.
Can I use the scheme if I've owned a house before?
Potentially.
You may qualify if you have not owned property or land in Australia within the previous 10 years, subject to the other eligibility requirements.
Can I use the scheme for an investment property?
No. The property must be an eligible owner-occupied home.
Is there an income limit?
The income caps that previously applied to the general scheme were removed from 1 October 2025.
You still need to meet the lender's normal borrowing and servicing requirements.
Can I use a 5% deposit to buy land and build?
Potentially, yes, depending on the specific construction arrangement and scheme requirements.
If you're considering a house-and-land package or construction loan, it's important to have the lender assess the structure before signing contracts.
Is a 5% deposit enough to buy a home?
It can be enough for the deposit component of an eligible purchase, but you should also budget for stamp duty, legal fees, inspections and other upfront costs.
Why Choose Formulate Finance Group?
Buying your first home with a smaller deposit can be an exciting opportunity, but there are plenty of moving parts to consider.
At Formulate Finance Group, we can help you understand whether a 5% deposit home loan could work for your circumstances and what your options may look like.
We can help you:
Work out your borrowing capacity
Determine how much deposit you may need
Check whether you may be eligible for the Australian Government 5% Deposit Scheme
Compare suitable lender options
Understand your estimated repayments
Work through the upfront costs of buying
Consider whether a government scheme, standard loan or another low-deposit option may be more suitable
Most importantly, we'll help you understand what you can realistically afford, rather than simply focusing on the maximum amount a lender may approve.
Final Thoughts: You May Not Need a 20% Deposit
For many years, first home buyers have heard that they need to save a 20% deposit before they can buy a home.
That's not necessarily the case.
With the Australian Government 5% Deposit Scheme, eligible first home buyers can potentially purchase with a minimum 5% deposit and avoid LMI.
But a smaller deposit also means borrowing more, so it's important to look beyond the deposit and consider your repayments, ongoing costs and overall financial position.
If you've been saving for years but still don't have a 20% deposit, it may be worth finding out whether you have other options.
Ready to find out if you could buy with a 5% deposit?
Get in touch with Formulate Finance Group to discuss your borrowing capacity, deposit and first home buyer options.
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